If the 20% runup shares of JD.Com Inc(ADR) (NASDAQ:JD) have dished out since the beginning of the year are any indication, then most owners of JD stock feel pretty good about what the company’s fiscal Q4 report is going to look like when it’s unveiled on Wednesday morning.
And, it’s not a bad bet. Although the company is still posting losses on a regular basis — and is expected to do so for the foreseeable future — the top line is growing like crazy. Sometimes, growth now and the mere hope of profitability in the future is enough to keep the market satisfied.
The question is, will Wednesday’s results be enough to keep JD stock holders on the hook for a while longer?
JD.com Earnings Preview
JD.com is a popular e-commerce venue serving the Chinese market, serving as a key fixture in the country’s new economy landscape alongside bigger players like Alibaba Group Holding Ltd (NYSE:BABA). It has earned its reputational stripes though, logging several years of double-digit revenue growth. The lack of profits just doesn’t matter yet. It’s all about the story.
That’s a good thing too, since the company isn’t expected to report an actual profit for the recently completed quarter. As of the latest look, analysts believe JD.com will post a loss of 6 cents per share on revenue of $11.15 billion. That top line projection is 40% better than the year-ago figure, extending a long-standing growth trend. The company lost 7 cents per share of JD stock in the comparable quarter from a year earlier, but again, profits are far from the priority.
Those numbers, if met, will top off a similarly impressive year.
JD.com is expected to report a full-year loss of only 1 cent per share, and sales of $37.4 billion. The e-commerce player reported a loss of 9 cents per share of JD, and a top line of $26.4 billion, in the prior year.
Analysts Bullish on JD
The pros have taken notice of JD.com’s persistent growth, as well as its slow (and uneven) journey toward profitability. J.P. Morgan analysts Alex Yao and Binbin Ding upgraded JD stock to “Overweight” earlier this year, explaining:
“We are turning more positive on JD for: 1) 1P revenue growth momentum and margin outlook (1P revenue +33% and GM +70 basis points [basis points] in 2017); 2) 3P [third-party sales] growth recovery in 2017 (3P revenue +34% in 2017); and 3) positive financial impact from potential JD Finance spin-off (JPMorgan estimate: RMB700 million cost saving in 2017). As a result, we increase our 2017/18 non-GAAP operating profit estimates from RMB1.2 billion/4.3 billion to RMB2.4 billion/8 billion. Our 2017/2018 Non-GAAP EPS is 21%/34% higher than consensus … We expect 1P gross margin to increase by 70 basis points/40 basis points in 2017/2018.”
It will be interesting to see to what extent Ding’s and Yao’s expectations begin to take shape within the accounting statements.
That being said, it was Barron’s contributor Steven Sears who may have offered the most pragmatic trading advice for JD stock heading into Wednesday’s earnings report. He commented earlier this week:
“We are normally inclined to take the opposite view of the crowd. If others are bullish, we like to be bearish, and vice versa. This reflects our experience that the crowd runs too hot or too cold, and that extremes represent inflection points.
But our experience with Asian investment patterns has led us to believe that it is often better to discount investor fears than react to them. The Asian market narrative focuses too much on short-term challenges, while heavily discounting the extraordinary commitment of China’s government, and the leaders of major companies, to create viable long-term enterprises. Hence, we are inclined to bullishly position ahead of earnings.”
Sears concluded:
“If JD’s management delivers a good outlook and solid numbers, the stock chart suggests that could happen. Should the opposite occur, fret not. You will own shares in China’s second-largest e-commerce company, a company that is so intriguing that Wal-Mart Stores Inc (NYSE:WMT) owns more than 10% of the company.”
Bottom Line for JD Stock
While investors are mostly bullish headed into earnings, the analyst community isn’t collectively quite as keen. The stock rates at just a little less than a “Buy”, and the average price target of $29.72 is a tad below the stock’s current price.
That’s concerning on the surface, but there’s a counterintuitive benefit to those lackluster leanings. That is, should the company log a solid beat of top- and bottom-line estimates, those analysts may be pressed to finally up their opinions and target prices. That in itself sets the stage for the bullishness that follows such upgrades.
Whatever the case, Wednesday’s report is still only going to be one chapter in a very long story. Don’t sweat it too much either way.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
